Stay the Course

Contributing editor Jack Stack is president and CEO of SRC Holdings Corp., based in Springfield, Missouri. The company's innovative style of open-book management -- financial information is shared among managers and employees -- is summarized in Stack's book The Great Game of Business, coauthored with Inc. editor at large Bo Burlingham.

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There comes a point every spring when, if you listen closely, you can hear the sound of numbers being crunched throughout the land. It's the time of year when businesspeople across America realize that things aren't going the way they predicted back in December, when they approved their companies' annual plans. So they bring out the calculators and sit down to do new ones.

In the process, they squander one of the best opportunities they have to make serious, long-term improvements to their organizations.

I take a hard line on this issue: in my opinion, you should never change an annual plan during the course of the year, no matter how far off the mark it proves to be. You have to stick with it, measure your performance against it, and keep everyone focused on the deviations--even if it hurts. Why? Because the alternative is to accept mediocrity.

To build a great company, you need an operating model that you constantly refine and improve. By model, I mean a complete set of systems, a methodology that defines the way you run every aspect of your business. Deviations from the plan are clues that can help you understand what's wrong with your model. They point you toward the changes that will strengthen it. They show you what you need to do differently, so that you don't keep having the same problems and making the same mistakes year after year.

You lose that information when you change your plan. In effect, you make your mistakes disappear. You don't learn from them. You may think you know what caused a particular deviation, but you don't analyze it. You don't focus on it. And so you don't fix it. Are there problems with your planning process? Are you missing something that's happening in the market? Do your people have the tools they need to hit their numbers? Is the management getting sloppy? What's really going on, anyway?

If you want to improve, you have to take those questions seriously. You have to look hard for the answers, and--when you find them--you have to act. That doesn't happen in a lot of businesses.

I serve as an adviser to a company that began missing its sales forecast in the first week of the year. The guy in charge of sales didn't seem very excited about it. I couldn't understand how he could be so calm. I mean, these people had blown a forecast five days into the plan.

I asked how it could have happened. He said, "We just didn't have enough salespeople on roll." It was as if the deviation was OK as long as he had an explanation for it.

I still didn't get it. "Why didn't you have enough salespeople?" I asked.

"Well, we're changing the way we hire and train salespeople, and we didn't want to bring new people on until the training program was ready," he said.

"But didn't you know that when you made the forecast?" I asked. He admitted that he did. "Then why did you forecast such high sales?"

"We just based them on last year."

So the problem lay in the company's forecasting process. Like most companies, it was relying much too heavily on past performance to predict the future. It wasn't investigating the market, talking to customers about their plans, looking at what competitors were doing, or analyzing its own ability to sell. Nobody owned the forecast, because nobody had worked very hard to create it. There was no passion for the numbers, no accountability for the results, no sense of mutual commitment to carry out the plan. And the people in charge were compounding the problem by treating the deviation as a routine matter, nothing to get upset about.

The same thing happens when you change your annual plan. Not only do you skip lightly over the mistakes that led to the deviations, but you send a bad, bad message to your people: that it's all right to fail. You say, in effect, "It's no big deal if we miss our targets. We'll just set new ones."

I'm not saying you should be inflexible. Of course, you have to stay in close touch with the market and constantly revise your forecast to reflect reality. But changing the forecast is not the same as changing the plan, or at least it shouldn't be. The forecast is just the first step in the chain of events leading to the creation of profit. The plan encompasses everything you expect to happen in the business over the course of the year--from selling to producing to delivering.

So how do you work with a revised forecast while keeping an eye on the plan? In my company we do it by looking at two sets of numbers every week: plan and opinion. The opinion numbers are based on the amount of business we think we're actually going to do in the current month, which is always somewhat different from the amount in our plan. In addition, we forecast monthly sales by division for six months in advance. That way, everyone has plenty of time to adjust if it looks as though sales are going to be above or below plan.

But we never forget about the plan. We see the deviations weekly, and we make sure everyone else does as well. Positive or negative, we want to know why they've occurred and what we should do about them.

Some people, I know, will ask, "But what if the plan really stinks? Won't people be demoralized if they see they have no shot at hitting the original goals? Shouldn't you set new ones?"

My answer is that the winners won't be demoralized. They may be angry, but they'll use their anger as a motivator. The deviations will bother them, eat at them, get them to search for an idea that will allow them to turn the situation around.

Listen, I've been there. I've always done my best work when I've had to come from behind. You need that sense of urgency. You need that heightened state of anxiety, that state of awareness and focus, to get your creative juices flowing. That's when you dig deep and find solutions. It's a condition that plays an important role in business; it's what creates new products, new ventures, new ways of doing things. And you lose all that when you treat your business plan like an Etch a Sketch. You take away a major incentive for people to excel.

Then again, I'm not saying it's easy--or fun--to create that sense of urgency. Often it involves acting like a mean-spirited nag.

We have one division that came in significantly below plan in our first quarter. Its managers took their eyes off the ball. While they were out on the road, dealing with strategic issues and developing new business, one of their biggest customers surprised them by cutting its shipping schedule. The reason: its warehouses were full. It simply didn't need, and wouldn't accept, all the product the division had been planning to ship.

I was furious. We should have seen the cutback coming. We missed it because the team that put together the division's plan had neglected to check its customers' inventory levels and thus didn't know they were high. It was a bush-league mistake. I told the general manager, "I can take real surprises, things you can't anticipate, but this one was the result of sheer negligence." No way were we going to accept the deviation or change the plan. The people in the division had made commitments to one another and to everyone else in the company. Those commitments had to be met. That meant finding a way to make up what the division lost in the first quarter.

And I have little doubt that we will make it up, because we have a competitive group of people in the division. Like all of us, these people make mistakes, but they're winners, and they accept the responsibility you carry when other people are counting on you to win.

My job is to help them win. For me to be effective, they need to know that I care about winning--which sometimes involves showing them how much I hate to lose. I'd be sending them the opposite message if I changed their plan just because they missed their targets in the first quarter. I think far too much of them, and of our company, to do that.

Jack Stack is the president and CEO of Springfield Remanufacturing Corp., in Springfield, Mo., and the author, with Bo Burlingham, of The Great Game of Business (Doubleday/Currency, 1992).

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